Financing

Subway says it is not for sale

The company made an emphatic statement on Wednesday as rumors continue to spread that it is on the market.
Photograph: Shutterstock

Those of you hoping to buy the Subway chain are out of luck. At least for now.

On Wednesday, the Milford, Conn.-based sandwich giant sent out an addendum to a statement it had put out on Tuesday, in response to an open letter from a group of the chain’s operators to Elisabeth DeLuca, widow of the company’s co-founder and one of its two main shareholders. It was pretty simple.

“Subway is not for sale.”

The comment was specifically in reaction to one part of that letter, in which the franchisees ask for 8% of the proceeds from any sale. “There is talk that a sale of Subway is pending,” the letter noted.

That “talk,” however, has come from recent media reports hyping sale rumors that have spread among operators and some former executives for years. Those rumors also received some new life because of the company’s decision to move some of its headquarters functions to Miami, the home of Burger King’s owner, Restaurant Brands International.

As Restaurant Business reported last week, however, CEO John Chidsey told employees last year that the chain was not being “gussied up for sale.”

Buyers frequently consider a run at Subway largely for valuation purposes. Most fast-food chains would require a substantial price in any deal, and Subway’s sales and closure challenges suggest it could theoretically be had for a lower valuation than other big chains.

But the chain’s two primary shareholders, DeLuca and Dr. Peter Buck, have been reticent to sell, anyway, and the price a buyer would be comfortable paying right now would be unlikely to sway them. And the chain’s still-heavy unit count (at 22,000 U.S. locations, it remains the largest domestic chain by number of restaurants, and by a fair number) suggest that growth could be a challenge.

Subway’s U.S. system sales declined 18.5% as franchisees closed nearly 1,800 locations, according to data from Restaurant Business sister company Technomic. Subway has closed 5,000 locations since it peaked at 27,000 in 2015.

The chain has a large number of small-scale franchisees that operate stores with low average unit volumes—the typical restaurant generated $365,000 in revenue last year, according to Technomic.

Operators’ frustration with years of weak sales has hurt morale in the chain. The group of anonymous franchisees that published its letter to DeLuca this week expressed several concerns over various actions by the company and its development agents, including issues over inspections and changes to the franchise agreement.

The group asked for several remedies, such as preventing development agents from buying stores they terminate. The request for proceeds from a sale was especially notable and unusual in a dispute between ta franchisor and franchisee.

Subway in its initial response said that the letter and its views were not indicative of the opinions of most of the company’s franchisees.

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